Monday, June 11, 2007

Another reason to like "gridlock"

I have no idea whether Washington will do anything about immigration. And if they do, it is not clear that it will make a difference. The status quo is fairly efficient and will probably remain so in light of what the politicians will or can possibly do.

That is the gist of Prof Gordon Hanson's analysis (as summarized in The Economist of June 2, excerpted below). And this is why we like "gridlock."

The uncomfortable economics of immigration

The Economist

... a low-skilled worker can
make $9.34 an hour in America, compared with just $2.56 in Mexico. [This] ... also
assumes that migrants depress the wages of low-skilled Americans by 5%—a widely
cited estimate. Thus Mexican workers gain dramatically by moving north, whereas
low-skilled Americans lose out slightly at worst. To justify opposing
immigration, the blog concludes, you must attach at least 20 times more weight
to the well being of a native-born American than to a Mexican.

Such calculations will not trouble America's politicians, who
are busy trying to solve the “problem” of illegal immigration. Congress's fix
promises a sorely needed path to citizenship for the 12m or so people already in
the country illegally. But it could prove worse than the status quo for future
migrants and native-born Americans alike.

The “compromise plan”, hashed out by a bipartisan group of
senators, offers would-be illegals—the 500,000 or so low-skilled workers who
sneak across the border every year—a legitimate route into America, through a
temporary guest-worker programme. Guest-worker visas would last for two years
and could be renewed up to three times. The idea is that if the front door is
ajar, no one will feel the need to break in at the back.

Unfortunately, the senators' plan ignores the economics of
illegal immigration. Its laws of motion are set out in a recent paper
* by Gordon Hanson of the University of California, San Diego. He points out that unskilled labour is increasingly
scarce in America. Since 1960 the share of native-born workers with less than a
high-school diploma has fallen from 50% to 12%. In response, illegal immigration
has proved to be a fairly efficient system for matching willing workers with
eager employers. Some 24% of farm workers, 17% of cleaners and 14% of
construction workers are foreigners doing their jobs illicitly.

This workforce is geographically mobile, and sensitive to
economic conditions in America or at home. One study in the 1990s showed that a
10% drop in Mexican pay relative to American wages prompted a 6% increase in
attempts to steal across the border. More recently, the incentives have shifted
the other way. A slowdown in remittances to Mexico and other Central American
countries suggests the housing bust, and home-building slump, may have reduced
the pace of illegal immigration.

Such efficiency is sadly absent from Congress's guest-worker
scheme. The senators' original compromise envisaged some 400,000 visas a year,
not far off the estimated figure for illegal entrants. But the number has
already been slashed to 200,000 and will not vary with economic conditions.
Employers will have to prove that they cannot find a willing American worker
before they apply for the visas. And would-be migrants must undergo background
checks and a medical exam before they arrive. Changing employers once in America
involves more bureaucratic hoops.

In short, neither American employers nor would-be migrants are
likely to find the guest-worker channel as appealing as the illegal routes they
already ply. Not surprisingly, therefore, the senators want to make illegal
immigration less appealing. The compromise bill promises some 6,000 extra border
guards, hundreds of miles of new fencing and a huge database for checking
workers' legal status.

Is all this policing and picketing worth it? Illegal
immigration, after all, is a boon to the economy as a whole, much as freer trade
yields a net economic gain. An influx of low-skilled workers may squeeze the
wages of their competitors, but it benefits the businesses who hire them, and
profits consumers, who get their lawns mown and children minded at lower

Set against this economic gain is a fiscal cost, as
immigration's opponents are quick to point out. Illegal migrants, with their low
skills and large families, are likely to consume more in government services,
such as education and health care, than they pay in taxes. The exact fiscal
impact is controversial. The federal government is probably a net winner,
whereas states, which pay a bigger share of schooling and emergency health care,
lose out. Today's taxpayers may suffer—they must pay for educating the children
of illegal immigrants. But tomorrow's may gain—these first-generation Americans
will likely earn far more than their parents, adding to the pot of taxes in the
future. ...